Half Year 2024 Exceptional Items Update

BHP announces two items which will be recognised as exceptional items in BHP’s financial results for the half year ended 31 December 2023 (HY24 Results).

These items relate to an impairment of the carrying value of the Nickel West operations and West Musgrave project (Western Australia Nickel) and an increase to the provision for the Samarco dam failure.

The HY24 Results remain subject to review by BHP’s external auditor and final review and approval by the BHP Board.

The HY24 Results will be released on 20 February 2024.

BHP Chief Executive Officer, Mike Henry, said “This is an uncertain time for the Western Australia nickel industry and we are taking action to address the current market conditions. We are reducing operating costs at Western Australia Nickel and reviewing our capital plans for Nickel West and West Musgrave.

BHP Brasil along with Samarco and Vale continue to progress negotiations towards a settlement of the Federal Public Prosecutor Office Claim and Framework Agreement obligations in Brazil. The Renova Foundation has made good progress on reparation and compensation programs and over 84% of the community resettlement cases have been completed.”

Impairment of Western Australia Nickel

During the period, BHP integrated the West Musgrave project (acquired from OZ Minerals) with the Nickel West operations to create the Western Australia Nickel business unit. Western Australia Nickel will be reported in the Group and Unallocated segment.

BHP will recognise a non-cash impairment charge of approximately US$2.5 billion (post tax) (approximately US$3.5 billion pre-tax) against the carrying value of Western Australia Nickel.

Developments for HY24

As disclosed in the January 2024 Operational Review, the nickel industry is facing challenges and there has been a sharp fall in nickel prices.

During CY2023, London Metals Exchange benchmark nickel prices fell considerably as both the supply of nickel from Indonesia significantly increased and the London Metals Exchange began accepting Indonesian-origin nickel products as part of its efforts to respond to evolving industry dynamics. These unfavourable operating conditions are expected to endure for a considerable time.

Due to the deterioration in the short-term and medium-term outlook for nickel, BHP has lowered its nickel price assumptions. In addition, capital costs for Western Australia Nickel have increased due to inflation. BHP has undertaken a carrying value assessment of Western Australia Nickel having regard to these factors and will recognise an impairment as at 31 December 2023.

The impairment reduces the carrying value of Western Australia Nickel’s net operating assets to negative US$0.3 billion, including closure and rehabilitation provisions of approximately US$0.9 billion. BHP will also record Underlying EBITDA of approximately negative US$0.2 billion at Western Australia Nickel in the HY24 Results.

As noted in the January 2024 Operational Review, operations at Nickel West are being optimised, and options are being evaluated to mitigate the impacts of the current low realised prices. Nickel West has responded by reducing discretionary expenditure and reviewing capital plans.

Nickel West’s Kambalda concentrator will be placed into care and maintenance in June 2024 following Wyloo’s decision to suspend its Cassini and Northern Operations mines from 31 May 2024. The Cassini and Northern Operations mines provide the majority of ore feed into the Kambalda concentrator and it will be no longer viable for Nickel West to continue operating the milling circuit after those mines cease operating.

BHP is also reviewing the development plans for Western Australia Nickel with a focus on preserving cash, which includes the potential to place Nickel West into a period of care and maintenance. The West Musgrave project, which BHP acquired as part of the OZ Minerals acquisition, is in execution and is 21% complete. BHP is currently assessing phasing and capital spend for the development of the West Musgrave project as part of this review.

Samarco dam failure provision

BHP will also recognise an income statement charge of US$3.2 billion (post tax) (approximately US$3.1 billion pre-tax) in relation to the Samarco dam failure.

BHP Brasil’s provision for the Samarco dam failure will be US$6.5 billion as at 31 December 2023.

As disclosed in BHP’s 2023 Annual Report, BHP Brasil’s provision for the Samarco dam failure as at 30 June 2023 was US$3.7 billion, of which US$0.3 billion was utilised in the period to 31 December 2023.

The exceptional item to be recognised in BHP’s HY24 Results predominantly reflects the assessment of the estimated costs to resolve all aspects of the Federal Public Prosecution Office Claim and the Framework Agreement obligations.

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